Kathleen Hamann Quoted in Global Investigations Review: Companies Frustrated by New US Strategy to Prevent Technology Leaks to Russia, Lawyers Say
Excerpted from the May 31, 2024 edition of Global Investigations Review
In an effort to prevent the “headline-grabbing phenomenon” of American-made components ending up in Russian weapons used against Ukraine, the Bureau of Industry and Security (BIS) has been sending “red flag” letters to companies asking them to “voluntarily stop shipping” to hundreds of foreign businesses “presumed to be diverting US components to Russia.”
While the red flag letters are not legally binding, companies that choose to ignore the letters may risk “tougher sanctions if BIS decides to bring an enforcement action down the line.” But if the business complies with the letter by terminating contracts without “proper legal justification,” they could be exposed to potential legal action.
Pierce Atwood partner Kathleen Hamann, an internationally recognized authority in the field of white-collar enforcement and compliance matters, stated, “Choosing whether to terminate contracts with red flag businesses would be a more clear-cut decision for companies if BIS added them to its entity list. If an entity is designated, generally there are clauses that give you an out — whether its compliance-with-laws clauses or force majeure — so you can exit the contract,” adding, “but when there’s no designation, that might not be so straightforward.”
Kate went on to note, “BIS appears to be trying to have it both ways — they don’t have to face a challenge to a designation, but the company will still get in trouble if they don’t treat them as designated because they are disregarding a risk. But it leaves the exporters in a really tough place.”
Finally, Kate stated that, “while some companies may be able to afford expensive subscriptions to software that automates the screening process, many smaller companies are still ‘manually’ checking for possible diversion risks.”